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ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 1
Global Outlook: 2019/2020Cracks Emerge
As Trade War IntensifiesRecession Fears Growing
Presented at
ECONOMIC FORECAST DAYELECTRO-FEDERATION CANADA
Presented byMaureen Farrow
Economist/StrategistECONOMAP INC.
(416) 364-2999
September 19, 2019
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 2
July Monthly Change Total 99.0 Brazil 102.2 India 99.8 Japan 99.3 France 99.2 Major 5 Asia 99.1 Eurozone 99.0 G7 98.9 Canada 98.9 U.K. 98.9 China 98.8 USA 98.7 Germany 98.6
Global Economy Downside Risks IntensifyOECD Composite Leading Indicator – Amplitude Adjusted July 2019 – OECD Indicators
Major Markets Slow in UnisonReal GDP growth, % change yr ago
Source: OECD
Source: Moody’s Analytics
Moody’s Analytics Survey of Business ConfidenceDiffusion Index 4 wk MA
Source: Moody’s Analytics
99.0
99.5
100.0
100.5
101.0
Apr-2010
Sep-2010
Feb-2011
Jul-2011
Dec-2011
May-2012
Oct-2012
Mar-2013
Aug-2013
Jan-2014
Jun-2014
Nov-2014
Apr-2015
Sep-2015
Feb-2016
Jul-2016
Dec-2016
May-2017
Oct-2017
Mar-2018
Aug-2018
Jan-2019
Jun-2019
Source: OECD
Expansion
Contraction
Jul '1999.0
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 3
Global Economy on Deceleration Path Late-Cycle Challenges Gather Momentum
Trade Issues Dominate – Recession Fears Mount2019• Evidence of economic slowdown spreading around world.• Trade wars dominate outlook: U.S./China; U.S./Japan; U.S./Europe.• Manufacturing recession unfolds.• Global growth forecast at 2.6% 2019, 2.5% 2020. Downside risks evident.• Key supports remain U.S. and China (but both slowing).• U.S. expansion now in 10th year – recession fears mounting.• China’s stimulus now is about stabilizing growth at lower level, rather than reinvigorating the
economy.• Europe: growth slowing as troubles mount; Brexit and Italy. ECB moves to prop up economy.• Asia under pressure. Heavily dependent on export demand, vulnerable to rising protectionism.• South America on bumpy recovery path.• Global unemployment rates continue to fall and the output gaps around the world are closing. Core
inflation remains contained.• Central Banks led by the Federal Reserve have adopted a dovish pivot.• Global economic correction (recession) likely to occur in 2020.• The yield curve currently signaling caution!
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 4
Elevated Geopolitical Events PresentSignificant Downside Risks
• U.S. Trade Wars.• China’s New World Role: conflicts with U.S. position.• European disruption: Brexit, Italian debt, and changing Merkel
role.• Geopolitical events:
• Brexit• North Korea• Iran• Russia• Middle East• United States leadership
• Recession fears ahead. Business cycle getting long in tooth!• Democracy challenged by anti-elite politics.
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 5
Global Growth: Synchronized DecelerationTrade Wars Dominate Picture!THE SCORE CARD 2014 2015 2016 2017 2018 2019 2020
U.S. Business Confidence Weakens 2.5 2.9 1.6 2.2 2.9 2.3 1.7as Trade War Intensifies
CHINA Growth Now on Slowing Path 7.3 6.9 6.7 6.9 6.6 6.2 5.9
JAPAN The Struggle ContinuesAging Population Puts a Drag on 0.3 1.3 0.6 1.9 0.8 0.7 0.3Growth Prospects
EUROZONE Growth Slows / Recession Fears RisePolitical Uncertainties Dominate 1.4 2.0 1.9 2.6 1.9 1.1 1.2
INDIA Prospects Brighten / Election 2019 PositiveBut Serious Issues Must be Addressed 7.4 8.0 8.2 7.2 6.8 6.8 7.0
LATIN AMERICA Bumpy Recovery Path 0.4 0.2 -0.4 1.9* 1.4* 1.1* 2.2*
CANADA ChallengedChina Trade WarCanada / U.S. Economic Relations 2.9 0.7 1.1 3.0 1.9 1.5 1.7Commodity Tidal RouteElection 2019 – Uncertain Outcome
WORLD Global Growth Moderates 2.5 2.8 2.4 3.1 3.2 2.6 2.5Arrow indicates direction of revision to forecast* Ex-Venezuela
Real GDP Growth
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 6
Global Trade and Production Slowing
Source: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)
Where Are The Cracks?• Trade Wars.• Brexit.• Collapse in Business Confidence.• Manufacturing Recession.• Inverted Yield Curve.
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 7
Trade War IntensifiesThe Dispute is a Complex Economic & Geopolitical Set of Issues
U.S. Effective Tariff Rate, %
BACKDROP• China’s rising global power. Washington attempting to get Beijing to curb activities.• Understanding China’s perspective leads to why an agreement is hard to reach.• Bottom-line: Will Trump push too hard?DAMAGE TO DATE• U.S.A. – estimated tariffs now like a tax on business and consumers of US$100 billion
per annum, equal to 0.5% of U.S. GDP.• China – has responded by hitting imports, particularly agricultural products and yuan
has fallen sharply.
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 8
China’s Ongoing Weak Export PictureChina monthly merchandise trade, US$ bil
No Winner Yet!U.S. Trade Deficit
$bil
Source: Census Bureau, Moody’s AnalyticsSource: US BEA
Trade War Shifts the Mix of ImportsU.S. merchandise imports, $bil, NSA
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 9
China Playing a Long Game
Source: Visual Capitalist Web site (data from Angus Maddison & IMF)
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 10
Global Purchasing Managers’ IndicesManufacturing – as of August 2019
Global Manufacturing Slowdown/RecessionGlobal Leading Indicator
JP Morgan Global Purchasing Managers’ IndexU.S. Manufacturing Sector is in Recession
Purchasing Managers’ Index, SA
Cycle Peak60.6
Current Recent Trough60.6
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 11
Business Confidence DeterioratesBusinesses Are Losing Faith
Business sentiment diffusion index, net % positive
Eurozone Economic Sentiment IndexLong term average = 100, SA
Source: Moody’s Analytics
Source: European Commission
• According to Duke University U.S. CFO’s Survey, 2/3 believe a recession will occur before end of 2020.
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 12
Negative Yielding Debt Passes $17tn
Difference Between 10-yr Treasury yield and 3-mo EBY, %
Global Value of Negative-yielding Bonds ($tn)
Source: Federal Reserve, Moody’s Analytics
Source: Bloomberg, Financial Times
Yield Curve Signals Recession
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 13
The Inverted Yield Curve?WHY SHOULD WE BE CONCERNED?• Bond markets are signalling slowdown/recession.• Bond market usually leader in identifying economic trends / inflexion points.• The 10-year U.S. treasury bond has tumbled from 3.2% last November to
1.72% on September 10.• There is a flight to safety: currently around US$17 trillion worth of bonds
around the world are yielding below zero %. The highest number since 2016.
ARE WE WORRIED? YES A LITTLE!• The Fed will continue to cut rates if recession fears mount.• This is not 2008/2009 – next global slowdown will be less severe.• The risk of contagion is unlikely – although global debt levels have grown –
mostly government debt in advanced economies and Chinese domestically funded.
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 14
Global Gross Debt / GDP Rates with IMF Forecasts
Source: IMF
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 15
Recession Concerns Spike
Source: Google Trends, Moody’s Analytics
U.S. Google search term, 100=peak popularity
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 16
Monetary Policy To The Rescue!How Effective Can It Be
This Time?
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 17
Monetary Policy Gets Re-CalibratedCentral Banks Turn More Dovish, Hit the Pause Button
And Start to Cut Rates
• Global economic conditions deteriorate.
• Trade frictions/issues continue.
• Core Inflation remains relatively well behaved.
• Geopolitical issues: Brexit, Italian Debt etc., hurt business and consumer confidence.
Central Banks yet again key to supporting national economies.Tightening cycle over – looking at a period of low interest rates.
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 18
The Hiking Cycle is Dead
Source: Bloomberg
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 19
Short-Term Interest Rates: Globally, Balance Has Shifted Towards Further Easing of Monetary Policy
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 20
A Very Long-Term Perspective for U.S. Long-Term YieldsIndicates: Rates are “Normalizing”
Think “Low for Longer”
September 10, 2019 1.72%
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 21
Average Yield for Canada 10 Yr+ Bonds
September 10, 2019 1.34%
1936 – 2017
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 22
Central Banks at Mid-2019Fed, ECB, BofE, BoJ, RBA and BoC
A Dovish Pivot by Central Banks
Central Banks have hit the pause button• Federal Reserve: Hit pause button. Now pressing on the patience pedal. Balance sheet
run-off ends September. Expects to keep rates below the long-run equilibrium rate through 2020 / 21. Seismic Shift. Anticipate flat yield curve! Rate cuts now the plan. Rethinking execution of mandate “Listening Project”.
• ECB: Moved aggressively to support economic activity at September meeting. Cut deposit rate to -0.5% from -0.4%. Announced new round of QE (€20 billion a month) November and extended maturity of TLTRO III programme. Linked forward guidance to the 2% inflation target.
• BoJ: Maintaining current QE program and low interest rate policy.
• RBA: Moved to sidelines. Rate cuts have begun.
• BofE: Prepared to support economy as it gets hit by Brexit fallout.
• BoC: Moved to sidelines – Anticipate a rate cut before year-end.
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 23
North American Monetary Policy EasesCaution and Flexibility Set the Scene!
Dovish Pivot: Flat Yield Curve!
Source: Bank of Canada and ECONOMAP
Canada Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Overnight Rate 0.50 0.50 0.50 0.50 0.50 0.50 0.83 1.00 1.25 1.25 1.50 1.75 1.75 1.75 1.75 1.50 1.50 1.50 1.50 1.50
91-Day Treasury Bills 0.45 0.51 0.50 0.48 0.47 0.54 0.81 0.92 1.14 1.21 1.47 1.66 1.65 1.67 1.65 1.40 1.40 1.40 1.40 1.40
10 - Year Gov't Bond 1.22 1.28 1.06 1.45 1.71 1.51 1.95 1.96 2.24 2.28 2.28 2.32 1.86 1.62 1.30 1.35 1.50 1.60 1.65 1.75
U.S.A. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Fed Funds Rate 0.38 0.38 0.38 0.46 0.71 0.96 1.13 1.21 1.46 1.71 1.96 2.21 2.38 2.38 2.13 1.63 1.63 1.63 1.63 1.63
90 - Day Treasury Bills 0.29 0.26 0.30 0.43 0.60 0.90 1.06 1.23 1.58 1.87 2.08 2.36 2.44 2.35 2.60 1.60 1.55 1.60 1.65 1.65
10 - Year Gov't Bond 1.92 1.75 1.56 2.13 2.44 2.26 2.24 2.37 2.76 2.92 2.93 3.03 2.65 2.33 1.75 1.70 1.80 1.90 2.00 2.10
Canada/U.S. T-Bill Spread 0.16 0.25 0.20 0.05 -0.13 -0.36 -0.25 -0.31 -0.44 -0.66 -0.61 -0.70 -0.79 -0.68 -0.95 -0.20 -0.15 -0.20 -0.25 -0.25
Canada/U.S. 10 - Yr Bond Spread -0.70 -0.47 -0.50 -0.68 -0.73 -0.75 -0.29 -0.41 -0.52 -0.64 -0.65 -0.71 -0.79 -0.71 -0.45 -0.35 -0.30 -0.30 -0.35 -0.35
Forecast
2017
2017
2016
2016
2020
2020
2019
2019
2018
2018
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 24
ButQE Will Be Around For A Long Time
Source: Haver Analytics, Forecast Oxford Economics
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 25
The FED’s “New Normal” Balance Sheet?Plans to end run-off of Balance Sheet by end of September. And rundown of Treasury
holdings began slowing in May. Earlier ending to QT than originally planned.Fed’s Balance Sheet ($ tril)
ECB’s Ever-Growing PortfolioTotal assets €bil, shaded area start of QE
Source: ECB, Moody’s Analytics
QuadrupleUnited States (% of nominal GDP)
Fed’s Balance Sheet
Source: Federal Reserve Board
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 26
7580859095
100105110115120125130135140
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
JPY/USD Spot
Source: US Federal Reserve
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
USD / Euro Spot Rate
60
65
70
75
80
85
90
95
100
105
110
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
U.S Cents
100
105
110
115
120
125
130
135
14 15 16 17 18 19
Canadian Dollar
Currencies
11 Sep ‘1975.87
11 Sep ‘191.1010
EURO
Japanese Yen
11 Sep ‘19107.82
U.S. Dollar - Trade-weighted Broad Index
06 Sep ‘19130.55
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 27
Core Inflation Remains ContainedGood News for Central Banks as They
Re-Calibrate Monetary Policy
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 28
Global Price Environment Still Remains Relatively Well Behaved
Source: Moody’s Analytics
Global CPI (% change)
Inflation SnapshotLatest Data – July CPI % change year ago
Country YoY Direction U.S. +1.8 Canada +2.0 U.K. +2.1 Germany +1.7 Euro Zone +1.0 China +2.8 India +3.1 Global +4.7 Developed Economies +1.5 Developing Economies +6.6 Source: ECONOMAP
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 29
United States EconomyKey to Shaping Cycle
Trade Wars and Washington Politics Threaten U.S. and Global Outlook
Fed Re-Calibrating Monetary PolicyBut Will it Be Enough?
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 30
Tax cuts and Fed spending accelerate growth in 2018. Now fading.
Job creation has been solid, wage gains starting. Unemployment headed to low 3s. Consumers key to next phase of cycle! Consumers
reluctant to take on debt. Housing peaked for this cycle? Business investment has cooled. Capex dampened by trade issues / threats. Inflation contained. Fed moves to support economy. Risks: Trump policies and politics.
U.S. Economy Approaching Late Cycle StageGrowth Profile Moderating
QUARTERLY GROWTH PROFILE(QoQ% AR)
Q1 Q2 Q3 Q42013 3.6 0.5 3.2 3.22014 -1.1 5.5 5.0 2.32015 3.2 3.0 1.3 0.12016 2.0 1.9 2.2 2.02017 2.3 2.2 3.2 3.52018 2.5 3.5 2.9 1.12019 3.1 2.0 1.9 1.62020 1.7 1.9 2.0 1.9
GDP2009 2.6%2010 2.6%2011 1.6%2012 2.2%2013 1.8%2014 2.5%2015 2.9%2016 1.6%2017 2.4%2018 2.9%2019 2.3%2020 1.7%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
14Q1 14Q3 15Q1 15Q3 16Q1 16Q3 17Q1 17Q3 18Q1 18Q3 19Q1
Annualized QoQ % Change (Chained 2012 Dollars)
Q2/192.0%
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 31
45
50
55
60
65
10 11 12 13 14 15 16 17 18 19
Readings above (below) 50 mean that manufacturing is expanding (contracting)
Percent
50.0
52.0
54.0
56.0
58.0
60.0
62.0
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19
Percent
May 1956.9
Economy Still Growing For NowBut Cracks AppearingSOLID
U.S. ISM Index of Non-ManufacturingServices (88% of GDP) Solid
Aug ‘19 49.1
U.S. ISM Index of Manufacturing
DETERIORATING
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 32
0
100
200
300
400
J-18 M-18 M-18 J-18 S-18 N-18 J-19 M-19 M-19 J-19
Thousands of Jobs SA
MoM Change in Non-farm jobsAug '19 +130 K
3.0
3.5
4.0
4.5
5.0
5.5
6.0
J-16 A-16 J-16 O-16 J-17 A-17 J-17 O-17 J-18 A-18 J-18 O-18 J-19 A-19 J-19
Percent
US Unemployment Rate 16+
Labour Markets Remain Healthy?2018 Average Monthly Gains 223,000 – In 2019 Slowed to 158,000
Initial Claims Remain FavourableInitial claims for unemployment insurance benefits, ths
U.S. Total Employment U.S. Unemployment Rate
Trend Job Growth Slowing, But Still SolidNonfarm employment, change, ths
Source: Statistics CanadaSource: US BLS
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 33
Consumer Confidence Still Close to Highs
Source: Conference Board
2030405060708090
100110120130140
10 11 12 13 14 15 16 17 18 19
1995=100
US Consumer Confidence
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 34
-1%
1%
3%
5%
7%
9%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10 11 12 13 14 15 16 17 18 19
Retail Sales and Food Services
Retail Sales and Food Services (ex autos)
YoY % Change
Americans’ Buying ModeratingFor Cars and Goods!
U.S. Retail Sales
Shopping Patterns Changing
U.S. Vehicle SalesMil Units, SAAR
Internet SalesE-Commerce
% of total sales
INTERNET SALES 19Q2 19Q1 18Q4 18Q3 18Q2 18Q1 17Q4
E-Commerce sales, $ bil 146.2 140.3 135.0 132.8 129.0 125.3 121.5
% change 4.2 4.0 1.6 2.9 3.0 3.2 4.1
% change yr ago 13.3 12.0 11.1 13.8 14.2 15.9 16.8
E-Commerce as a % of retail sales 10.7 10.5 10.1 10.0 9.8 9.6 9.4
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 35
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
10 11 12 13 14 15 16 17 18 19
US Exisiting Home Sales (SAAR)
Thousands of Units
400
500
600
700
800
900
1000
1100
1200
1300
1400
10 11 12 13 14 15 16 17 18 19
000s Units
US Housing Starts SAAR
5.0
15.0
25.0
35.0
45.0
55.0
65.0
75.0
10 11 12 13 14 15 16 17 18 19
Index
US NAHB Housing Market Index SA
Housing Market Growth SlowsU.S. NAHB Housing Market Index U.S. Housing Starts
MBA Mortgage ApplicationsComposite, Mar 16, 1990=100
Copyright © Mortgage Bankers Association, Sep 2019. All Rights Reserved
U.S. Existing Home Sales
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 36
26.8%
4.0%
10.0%
2.0%
5.9%
-1.1%-1.1%-0.3%
3.4%1.5%
5.0%
-5%
0%
5%
10%
15%
20%
25%
30%
10 11 12 13 14 15 16 17 18 19 20
YoY % Change
21.2%16.6%
-8.2%
0.7%4.8%
-29.8%
-6.8%
34.0%
0.8%
-3.0%
6.0%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
10 11 12 13 14 15 16 17 18 19 20
YoY % Change
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
$0
$500
$1,000
$1,500
$2,000
$2,500
Q108 Q109 Q110 Q111 Q112 Q113 Q114 Q115 Q116 Q117 Q118 Q119
US$ Billions SAAR QoQ % Change
Q2 2019 5.3%
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
Q108 Q109 Q110 Q111 Q112 Q113 Q114 Q115 Q116 Q117 Q118 Q119
Q2 2019 5.24%
QoQ % change SA
U.S. Corporate Earnings Supported by Corporate Tax CutsCanadian Earnings Hurt by Commodity Cycle
Source: BEA
Canada Corporate Profits Before Taxes
U.S. Operating Profits
Source: Statistics Canada
(With IVA & CCA)
U.S. Corporate Profits Before Taxes
Canada Operating Profits
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 37
-33.4-26.3
-18.4-11.4
2.9
-2.0
-19.0 -19.9-14.5
-19.0 -19.0
-70.0
-60.0
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
CDN $ Billion
Canada Current Account Deficit (C$ Bil)U.S. Current Account Deficit (US$ Bil)
Trump Fiscal Stimulus = Higher Deficits / DebtLonger Term U.S. Debt a Major Global Imbalance and Risk
Canada Deficits Grow – Provincial Deficits / Debt Builds! U.S. Government Deficit Canadian Government Deficit
-1294-1300-1087
-680-485 -438
-585-666-779
-980 -1025
-2000-1800-1600-1400-1200-1000
-800-600-400-200
0200400600
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
USD Billion
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 38
AsiaChinese Economy on Entrenched Slowing Path
Japan Muddles AlongIndia – Challenged
Risks: U.S. / China Trade War
U.S. / Japan Trade IssuesU.S. / India Trade Issues
North Korea
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 39
China Urban Fixed Asset InvestmentYTD, % change year ago
China Retail Sales% change year ago
China – Losing Steam / Struggling to Balance Challenges At Home and Abroad Supported by Targeted Policy
Measures as Trade War with U.S. Drags OnChina Industrial Production
% change year agoChina Real GDP% change yr ago
Jul ‘19 7.6%
Jul ‘195.7%
Q2 ‘19 6.2%
Jul ’194.8%
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 40
Slowing Chinese Domestic Activity Has Been a Key Drag on Growth
Source: Macrobond, China National Bureau of Statistics (NBS)
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 41
A Wild Ride Lower for The YuanCNY per USD
China Turns to Selective StimulusChina Trade Balance
US$ bilChina Official Manufacturing Purchasing Managers Index
> 50 is expansionary
Source: China General Administration of Customs
China’s Ongoing Weak Export PictureChina monthly merchandise trade, US$ bil
Source: Bloomberg, PBoC, Moody’s AnalyticsSource: China National Bureau of Statistics, Moody’s Analytics
Source: Moody’s Analytics
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 42
Prospects BrightenIndia Economy Returns to Growth Path / Election Result Favours Stability
Long Term – India’s Growth to Outpace China’s PerformanceBut Challenged in Short Term
India CPI - % change yr ago
India Real GDP - % change yr ago
Jul ’193.1 %
India Industrial Production - % change yr ago
Q2 ’195.0%
India Trade Balance – US$ Million
Jul ’19-$13.4 Bn
Jun ’192.0 %
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 43
Japan – The Struggle Continues!Yen’s Depreciation Boosts Exports - Risk, U.S. Trade Action
Build Out of Tokyo 2020 Olympic Games Will Support Growth2% Increase in Planned Consumption Tax in Oct. Will Hurt Consumer Spending in 2020
Japan Core CPI% change yr ago, NSA
Slowing, But Further Increases Expected Corporate Profits Stable But Remain High
Jul ’190.6 %
Japan Real GDP% change Q2 ’19
0.4 %
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 44
Euro Zone Flirts With RecessionAs Troubles Mount
ECB & BofE to Remain SupportiveRisks:
Brexit; Italian Debt/Gov’t; U.S. Trade Uncertainties
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 45
Euro Zone Growth SlowsPolitical Risks Cloud Picture
Germany Flirting with RecessionEuro Zone Unemployment Rate
%, SAEuro Zone Real GDP
% change, SA
Euro Zone Economic Sentiment IndexLong term average = 100, SA
Euro Zone External Trade Balance€ bil
Source: EUROSTAT
Source: European Commission
Source: EUROSTAT
Source: EUROSTAT
Jul ’197.5%
Jun ’19€20.6 Bn
Q2 ’190.2%
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 46
United Kingdom What Now?New PM, Boris Challenged
Political Chaos Reigns!
MISSED!
• Consumer spending softens• Minority government• Political confusion
U.K. Real GDP% change
Source: Office of National Statistics
Mar 2019 – PassedNew U.K. Leave dateApril 12 or May 22?
Impact so Far• Pound depreciation• Drop in M&A activity• Drop in Capex• Inflation accelerated in 2017/2018
October 31NEXT DEADLINE!EU says negotiations not open
Oct 2018Target date for agreeing to terms of U.K.’s exit from EU to leave enough time for ratification by various parliaments
Brexit Timeline Now Closing in
MISSED!
Q4 2018 / 2019Vote failed twice?March 26 vote again.
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 47
Canada ChallengedKey Issues:
China Trade IssuesCanada / U.S. Economic Relations
Market Access for ResourcesCapital Investment / Tax Competitiveness
High Household Debt LevelsFederal Election 2019
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 48
QUARTERLY GROWTH PROFILE(QoQ% AR)
Q1 Q2 Q3 Q42013 3.6 2.4 3.3 4.32014 0.6 3.8 3.9 2.92015 -2.1 -1.1 1.4 0.32016 2.4 -1.8 4.4 2.32017 4.1 4.4 1.3 1.72018 1.5 2.5 2.1 0.32019 0.5 3.7 1.4 1.42020 1.6 1.7 1.7 1.6
Canadian Economy Soft Spell Likely Behind Us?But Trade Issues Still Major Risk!
Awaiting USMCA ratification still!. Low oil prices hurt Alberta and Saskatchewan U.S. supports central Canada and exports. High level of household debt curtails spending in 2019/2020. Consumer
fatigue sets in. Housing market gets regulation: home construction slowing but still solid. Business investment uncertain / tax competitiveness an issue. Auto sector restructuring. Monetary policy on pause. Provincial deficits and Federal deficit rise. Getting resources to tidal water a major problem. Infrastructure program still outstanding. Changed U.S. relations. Trade protectionism. Federal election uncertainty.
GDP2009 -2.9%2010 3.1%2011 3.1%2012 1.8%2013 2.3%2014 2.9%2015 0.7%2016 1.1%2017 3.0%2018 1.9%
2019 1.5%2020 1.7%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
14Q1 14Q3 15Q1 15Q3 16Q1 16Q3 17Q1 17Q3 18Q1 18Q3 19Q1
Annualized QoQ % Change (Chained 2012 Dollars)
Q2/19 3.7%
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 49
-0.40%
-0.30%
-0.20%
-0.10%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19
MoM % change
‐0.6 ‐0.4 ‐0.2 0 0.2 0.4 0.6 0.8 1 1.2
Gross fixed capital formation
Inventories
Non-profit institutions servinghouseholds' final consumption
expenditure
Household final consumption expenditure
General governments final consumptionexpenditure
Imports
Exports
Gross domestic product
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
14Q1 14Q3 15Q1 15Q3 16Q1 16Q3 17Q1 17Q3 18Q1 18Q3 19Q1
Annualized QoQ % Change (Chained 2012 Dollars)
Q2/19 3.7%
Q2 Canada Growth Propelled by Exports!Contributions to percentage change
in Real GDP Q1/19Canada Real GDP
Business Confidence RetreatingPurchasing Manager Index, >50 is expansionary
Source: Statistics Canada
Source: Statistics Canada
Source: Statistics Canada
Canada GDP by Industry at Basic Prices
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 50
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
10 11 12 13 14 15 16 17 18 19
Unemployment Rate, SA
Percent
Aug '19 5.7%
-100
-80
-60
-40
-20
0
20
40
60
80
100
120
J-16 A-16 J-16 O-16 J-17 A-17 J-17 O-17 J-18 A-18 J-18 O-18 J-19 A-19 J-19
Thousands of Jobs SA
MoM Change in Non-farm jobs
Aug '1981.1 K
Job Growth OK / Household Debt RisesConsumer Spending To Be Restrained in
2019/2020Canada Employment
Canada Unemployment Rate
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 51
-2%
0%
2%
4%
6%
8%
10%
$20
$25
$30
$35
$40
$45
$50
$55
10 11 12 13 14 15 16 17 18 19
YoY % Change
CAN Retail Trade
CAN $Bn SA
Consumer Spending to Cool
Canada Retail Trade Vehicle Sales Will Retreat Further% change yr ago
Canada Savings Rate SlippingPersonal savings as a share of disposable income, %
Source: StatsCan
Consumer Finances in Need of RepairsHousehold debt-to-disposable income ratio, %
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 52
-10%
-5%
0%
5%
10%
15%
20%
35
40
45
50
55
60
10 11 12 13 14 15 16 17 18 19
$ Billions
YoY % Change CAN Sales
Canada: Growth to Slow in H2-2019/2020IVEY Purchasing Managers Index
Canada Housing StartsThs, SAAR
Canada Manufacturing
Canada Building Permits Value% change
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 53
Canada Overexposed to United StatesNeed to Execute CETA and Trans-Pacific Partnership and
Complete NAFTA – USMCADiffuse Chinese Issues
Sources: Statistics Canada, Moody’s Analytics
Autos Are Key Component of ExportsMerchandise exports to all countries, BOP basis, 2018
Trade War Hurts ExportsMerchandise exports, 2012$ mil, 3-mo MA, % change yr ago
ECONOMAP INC. STRATEGIC ECONOMIC ADVISORS 54
Canada Faces Trade UncertaintiesResource Regions Under Pressure – Need Route to Tidal Water
Manufacturing Benefits From U.S. Economic Pick Up and Depreciation of Loonie
2014 2015 2016 2017 2018 2019 2020CANADA 2.9 0.7 1.1 3.0 1.9 1.5 1.7B.C. 3.2 3.3 3.5 3.8 2.4 1.8 2.2ALBERTA 4.8 -3.6 -3.7 4.4 2.3 1.4 1.6SASKATCHEWAN 1.9 -1.3 -0.5 2.2 1.6 1.0 1.2MANITOBA 2.3 2.2 2.2 3.2 1.3 1.5 1.6ONTARIO 2.7 2.5 2.6 2.8 2.3 1.6 1.7QUEBEC 1.5 1.2 1.4 2.8 2.5 1.6 1.5NEW BRUNSWICK -0.3 2.3 1.2 1.8 0.1 0.5 0.7NOVA SCOTIA 0.6 1.0 0.8 1.5 1.2 0.7 0.7PEI 1.5 1.3 2.3 3.5 2.6 1.2 0.9NEWFOUNDLAND -2.0 -2.0 1.9 0.9 -2.7 2.0 0.5
Real GDP